On Thursday, the central government will announce its decision on interest rates on small savings vehicles for the July-September quarter. Interest rates on small savings programs are reset on a quarterly basis, in line with movement in standard government bonds of similar maturity. In the last quarter, the government decided to maintain the status quo.
How does the government decide on small savings rates?
Usually, small savings rates correlate with returns on benchmark government bonds, but despite the movement in G-Sec (government securities) yields, the government has not lowered interest rates in the past two years.
However, analysts have pointed to the possibility of a rate hike this time around given the increase in G-Sec’s returns over the last quarter. As of Thursday, India’s 10-year bond yield was 7.424 percent, compared to 6.843 percent on March 31. Notably, the Reserve Bank of India also raised the policy rate by 90 basis points during the April-June quarter.
What are the different rates applicable to small savings instruments?
Among the most popular fixed income products, the Public Provident Fund (PPF) generated 7.1 percent, while the National Provident Certificate generated 6.8 percent. The savings rate for the girl child, Sukanya Samridhi Yojana, is 7.6 percent. Interest rates on savings deposits remain 4 per cent per annum. One to five year term deposits earn interest rate in the range of 5.5-6.7 per cent, paid quarterly, while five year recurring deposit earn interest higher at 5.8 per cent.
When was the last time these prices were changed?
The interest rates on small savings plans for the first quarter of 2021-22 (April-March) were revised down sharply by 40-110 basis points but the decision was later reversed, with the federal finance minister saying “orders issued for supervision”.
The interest rate cut and subsequent withdrawal occurred in the run-up to the West Bengal Assembly elections. Prior to that, interest rates were revised two years ago for the first quarter of 2020-2021.
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